Senate Dems' sequester-replacement plan ends tar sands exemption

Lawmakers are working on a package of cuts aimed at replacing $85 billion of government-wide spending reductions, known as sequestration, scheduled for March 1. For more on the Senate Democrats' suggested $110 billion of cuts and tax changes, click here.

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Senate Budget Committee Democrats estimated the measure for the tar sands — a dense fossil fuel that requires energy-intensive processing for conversion into conventional oil — would reduce the deficit by $2 billion.

The barrel tax is the largest source of revenue for the Oil Spill Liability Trust Fund, which Congress authorized after the 1989 Exxon Valdez oil spill in Alaska’s Prince William Sound, the largest U.S. oil spill until the 2010 BP disaster in the Gulf of Mexico.

A Senate bill last year aimed at removing tax incentives for the oil-and-gas industry also scrapped the tar sands exemption, as does a climate bill introduced Thursday, a Senate Democratic aide told The Hill.

The proposal comes as President Obama weighs a decision on the Keystone XL pipeline, which would haul tar sands from Canada to Gulf Coast refineries.

Many Democrats and green groups want Obama to nix Keystone, saying it would deepen U.S. reliance on fossil fuels. Republicans, the oil-and-gas industry, some labor groups and a handful of centrist Democrats want him to approve it, saying it would create jobs.

Obama has final say on Keystone because it crosses national boundaries. The State Department is currently reviewing the project.